PRINCIPAL COMMISSIONER OF IT-II JAIPUR-1 vs. M/S RAJ STATE MINES AND MINERAL LTD

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 147 / 2015 Principal Commissioner of Income Tax-II, New Central revenue Building, Statue Circle, Jaipur (Raj.) ----Appellant Versus M/S Raj State Mines And Mineral Ltd., C-89-90, Lal Kothi Scheme, Jaipur. PIN/GIR No.AAACR7857H ----Respondent _____________________________________________________ For Appellant(s) : Mr. Aditya Vijay & Mr. Narendra Bhati For Respondent(s) : Ms. Archana for Mr. Sanjay Jhanwar _____________________________________________________ HON'BLE MR. JUSTICE K.S.JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYAS Judgment 12/10/2017 1. By way of this appeal, the appellant has challenged the judgment and order of the Tribunal whereby the Tribunal has dismissed the appeal of the department as well as cross- objections of the assessee. 2. This court while admitting the appeal on 21.07.2017 framed following substantial questions of law: “1. Whether on the facts and circumstances of the case, the Tribunal was justified in holding the expenses claimed as compensation for rock phosphate of Rs.9,83,22,430/- as revenue expenditure, inspite of the fact that the assessee by virtue of said expenditure has acquired benefits of enduring nature and were thus, not allowable as revenue expenditure? 2. Whether on the facts and circumstances of the case, the Tribunal was justified in holding the compensation of Rs.1,27,07,572/- paid to land owners/ farmers for using their land for extraction of minerals, as revenue expenditure, inspite of the fact that the assessee by virtue of said expenditure has acquired right of enduring nature and were thus, not allowable as revenue expenditure? 3. Whether on the facts and circumstances of the

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case, the Tribunal was justified in deleting the disallowance of Rs.10,00,000/- contributed by the assessee to State Renewal Fund, which was disallowed by the Assessing Officer as the same was merely an application of fund and not an expenditure? 4. Whether on the facts and circumstances of the case, the Tribunal was justified in upholding the deletion of disallowance of expenses of Rs.10,72,500/-, claimed on account of contribution to Social Welfare activities, despite the fact that the same was not incurred for the purposes of business as required under Section 37(1) of the Act? “ 3. Counsel for respondent contended that the issue is now covered by the decision of this court in the case of D.B. Income Tax Appeal No.33/2007 CIT Jaipur vs. M/s Rajasthan State Mines & Mi, decided on 30.05.2017 wherein while considering the issues, this court in Paragraph 4 to 7, observed as under:- “4. Counsel for the department has contended that the tribunal has committed error in passing the judgment and the issue is required to be answered in favour of the Department. 5. Counsel for the respondent-assessee has relied upon the following decision of this court:- 5.1. In CIT vs. Rajasthan Mines & Minerals Ltd. D.B. ITA No.107/2004 decided on 17.1.2017 wherein it has been observed as under:- “It is not in dispute that the issue is raised in this appeal is squarely covered by the Division Bench judgment of this Court in D.B. Income Tax Reference No.1/2000 (CIT, Jaipur vs. Rajasthan State Mines & Minerals Ltd.) decided on 15.9.2016 wherein it has been held as under:- "Taking into consideration the fact initially the Corporation has not accepted the liability, therefore, the observations which are made by the Tribunal for the year 1991-92 were in the peculiar facts where the liability was not accepted but subsequently for the year 1992- 93, the Corporation has accepted the liability which was shown in the books of account and in view of the matter additions made by the

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tribunal for the relevant year would not be applicable in the changed circumstances. Since, they accepted the liability, the resolution which is sought to be passed on 28.8.1992 was administrative formality but for the Income-tax purpose it is shown in the books of account mercantile system, therefore, though the point raised by Mr. Singhi is remained an academic issue but facts and law in mercantile system which is debited for the relevant year i.e. 1992- 93. On first point, the contentions raised by Mr. Singhi has a doubt but in view of the consideration by us the relevant year debited entry in the books of account for the year 1992- 93, therefore, resolution is passed subsequently but since it was mercantile system for the year 1992-93, it will come into force. The contention which has been raised by Mr. Singhi is required to be accepted, it can only be one time revenue expenditure and subsequent claim of the assessee will not be acceptable and if his claim is made and accepted, it will be for the department to recover the tax from the assessee. In that view of the matter, the issue is answered in favour of the assessee and against the Department for the revenue expenses (Rs.2,96,000/-) of year 1992-93 only one time.”

5.2. In CIT vs. Rajasthan Mines & Minerals Ltd. D.B. Income Tax Reference 1/2000 decided on 15.9.2016 wherein similar view was taken. 5.3. In Rajasthan State Mineral Development Corporation, Jaipur vs. Dy. Commissioner of Income Tax, Jaipur decided on 14.12.2016 wherein it has been observed as under:- Taking into consideration the observations which are made by this court in earlier judgment of the same assessee in para no. 11 & 13 holding as under:- He relied upon the decision of Hon'ble Supreme Court in the case of Alembic Chemical Works Co. Ltd. vs. Commissioner of Income Tax, reported in (1989) 177 ITR 0377 and Empire Jute Co. Ltd. vs. Commissioner of Income Tax, reported in (1980) 124 ITR 0001 and contended that under mercantile system, the expenses were shown in the year 1992-93 and even while assessment order was passed for the year 1991- 92, the assessee was made clear that he is accepting the liability and he further contended that he will not make payment which was made by the State Government for the expenditure incurred for the survey which is being done. Therefore, the Corporation had no other option to

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make payment which has no capital value. Taking into consideration the fact initially the Corporation has not accepted the liability, therefore, the observations which are made by the Tribunal for the year 1991-92 were in the peculiar facts where the liability was not accepted but subsequently for the year 1992-93, the Corporation has accepted the liability which was shown in the books of account and in view of the matter additions made by the tribunal for the relevant year would not be applicable in the changed circumstances. Since, they accepted the liability, the resolution which is sought to be passed on 28.8.1992 was administrative formality but for the Income-tax purpose it is shown in the books of account mercantile system, therefore, though the point raised by Mr. Singhi is remained an academic issue but facts and law in mercantile system which is debited for the relevant year i.e. 1992-93. It is thus very clear that the survey expenses are almost identical and hence required to be allowed as revenue expenses. In view of the observations made by the Supreme Court in the Judgment of Empire Jute Co. Ltd. vs. Commissioner of Income Tax (Supra), we are of the opinion that the expenses which gives fruitful result require to be done according to the necessity of relevant time and development with the nature of expenses. 6. We have heard counsel for the parties. 7. In view of the above, the issues are answered in favour of the assesee and against the department. It is held that the expenses incurred are revenue expenditure and not capital expenditure.” 4. In that view of the matter, the issues are answered in favour of assessee against the department. 5. The appeal stands dismissed. (VIJAY KUMAR VYAS)J. (K.S.JHAVERI)J. Chouhan/73